The Cisco Way

Silicon Valley companies talk about eating their own dog food. By that they mean companies that sell technology should actually use the things they sell.

The general counsel of Cisco Systems, the dominant maker of Internet equipment, follows a similar approach, with a hard line twist: His department will use the Internet and technology to improve its in-house legal practice—and any law firm that wants its business will have to do the same.

All businesses like regular, predictable earnings. But Cisco has long been among the most aggressive in trying to control every aspect of its revenues.

Even the company headquarters in San Jose, Calif., was planned for maximum efficiency. Every building on the campus is designed to be as bland as possible (even by Silicon Valley corporate office standards) so that it can be easily rented out to other companies in the event of a financial downturn.

In the past few years, general counsel Mark Chandler and his top lieutenants have been promoting a technology revolution in the practice of law through articles and speeches at legal technology trade shows. They have been evangelizing within the legal profession, going so far as to become consultants for big customers on how to better use technology in their practice.

“Mark is very focused on using technology to transform not just the Cisco legal department but the legal profession,” says Michael Stevens, manager of legal business services with Cisco.

The DuPont Way

Cisco isn’t the first big corporation to use its muscle to influence the way its outside counsel work. In 1992, the chemical giant DuPont decided it had to have a better way to deal with more than 300 law firms it was using for outside counsel. It introduced the DuPont legal model, which applied business discipline to the practice of law, using business metrics (like how many times a task is done and how many people it takes to do it) and information technology (like electronic billing) to simplify its relationships with law firms. The company now works with about 35 outside law firms.

While Chandler says he admires what DuPont has done, his approach is very different. “I think the DuPont effort was focused in a very different direction, to reduce the number of firms they worked with,” Chandler says. “For us, we’ve probably increased the number of firms of late.”

That’s because Cisco’s focus is to ask any law firm that works for the company to think about ways to improve service. The number of firms is not a problem; the question is how well those firms work with Cisco. And thanks to Internet technology, companies such as Cisco can think differently about whom they work with and how, taking on virtually as many law partners as they want anywhere on the planet. “In the past you would say, ‘I hope there’s one firm big enough to do it all for me,’ ” Chandler says. “Not anymore. Now technology lets you pick and choose and bring together the best in each area.”

To advance its plans, Cisco is getting firms to make competitive bids for legal work, often pushing for aggressive flat-fee rates. The company pays outside counsel $75 million a year, Chandler says, and roughly 70 percent of it is now in flat fees, a percentage he’d like to see increase. He also expects many of those firms to lower their flat fees each year. “We’re trying to get them to think about how to do the work in the most efficient way,” he says. “But we’re not trying to squeeze them; a key goal of ours is to have happy partners.”

For example, Cisco does all its patent review work on a flat-fee basis. To make the process more predictable and less of a risk, the company built an online patent tool for internal use that reviews the business case for an invention. Cisco engineers using the software answer questions about their possibly patentable innovations. Based on the answers, the software tries to identify whether something is indeed patentable, as well as any legal questions that might need to be addressed. If the software signals that the patent application meets Cisco’s criteria, it will be assigned to a law firm.

Patents are filed faster, and engineers can track the progress of their patent application online, without having to pester legal counsel. Houston-based Baker Botts does patent work for Cisco, and its attorneys have the same access to the online patent tool as authorized Cisco employees. Dallas intellectual property partner Bart Showalter says working online makes his patent work more predictable and easier to manage. “It eliminates a lot of paper, inefficient communications, in-person meetings and things that would slow things down,” he says.

And after working with the Cisco tool, Baker Botts took it upon itself to create its own extranet for managing patent investigations. Now Cisco pays Baker Botts a fixed fee for the service, which allows authorized Cisco and Baker Botts employees to have Internet access to documents and materials related to technical analysis of a patent application.

Showalter says the emphasis on using technology to streamline processes has been good for his firm’s work and bottom line. “Mark [Chandler] asked me if we were cutting corners,” Showalter says. “I said, ‘No—on the contrary, it’s made me think holistically about how to make our systems more efficient.’ ”

While Cisco’s approach has earned it a lot of notice within the legal community, not everyone is impressed. Some law firms argue Cisco is a rare company with the size, technological expertise and resources to work this way. They say smaller clients need a hands on relationship with their attorneys.

“When you work with smaller, entrepreneurial companies, a lot of what you do depends on relationships. We work directly with companies and the personnel,” says Herb Fockler, a partner at Wilson Sonsini Goodrich & Rosati in Palo Alto, Calif., one of the largest Silicon Valley law firms. “A big company like Cisco probably has fewer instances where they need a personal touch; they just want it done.”

Fockler hasn’t seen much demand from Silicon Valley companies for aggressive new uses of technology in the law. That’s not to say Wilson Sonsini is a technology laggard. The firm built one of the first knowledge management systems for pooling its intelligence.

And Fockler says he drove an experiment within the firm to use an electronic “deal room” for an initial public offering for Dolby Laboratories. A deal room is an electronic repository that collects all the related documents for a deal and allows people to collaborate on documents over the Web. While it was a useful experiment, he adds, technology like that isn’t going to be useful for all clients. “For much smaller deals, it’s not clear the effort and expense are worth it,” he says.

Stress on Streamlining

Within Cisco, as with most public companies, the pressure to streamline processes can seem incessant. “The legal function as a whole is not an island inside the corporate environment,” Chandler says. “I wouldn’t say there’s anyone breathing down my neck, but I do work under the same expectations as managers in other areas.”

The legal department set out to satisfy managers by automating routine legal transactions and letting employees handle the details via the Web. Because of automation, self-service doesn’t necessarily mean the legal department is out of the loop. An example is the system Cisco developed for its lawyers and employees to handle nondisclosure agreements.

Cisco employees sign thousands of these agreements a year, allowing them to talk to other companies about trade secrets without worrying about those secrets being stolen. Until recently, employees often would download a generic form from the company Web site and sign it, but then they rarely turned it in to the legal department. “We had no idea how many” turned into signed forms, Stevens says. “Someone throws [a form] into a file cabinet and it’s close to useless. If you can’t track down that paper, what basis do you have for litigation?”

To solve this problem, the information technology department came up with “NDA central,” a simple Web interface with a series of questions and forms that someone can fill in to create a nondisclosure agreement. Some of the questions will trigger an alert that sends the agreement to the legal department, but only if that subject demands special attention. The parties use e mail and a password to virtually sign the document with simple software Cisco calls Click Accept.

Lawyers don’t need to worry about thousands of pieces of paper, yet the documents become traceable. The self service technology helps both employees and the legal team. “I support the sales force, and we always try to make sure that what we’re doing is actually helping them and not just done to make our lives easier,” says Graham Allan, Cisco vice president and deputy general counsel.

Since NDA central has gone live, the Click Accept system has been adopted across the corporation. Now employees can fill out human resource documents or legal forms and never need human intervention.

In a matter of months, the company expects to have 6 million documents signed using Click Accept, saving an estimated $10 million a year.

“I’ve got a couple of ideas for places I’d like to use it, and I’m waiting in line,” says Laura Owen, director of legal services.

‘Change or Die’

Developing software to streamline internal operations is one thing, but Cisco is pushing a more radical agenda with outside counsel. Owen recently published an article in Law Technology News under the title “The Tech Evolution: Change or Die.”

Owen says, “More and more companies that I talk to that are not in the technology business say if you don’t have really dynamic technology management, if you don’t have extranets, if you don’t have e-billing, knowledge management, you’re not likely to get a seat at the table.”

Cisco has a software system that allows Chandler to track all sorts of metrics within the company. For example, he says, within minutes he can have a complete report on how Click Accept is being used within the company with figures on how many contracts are signed and which type.

He’s using this kind of capability to keep tabs on how well outside counsel is serving his company. He can monitor statistics such as how many hours are billed, how much work is done for a flat fee, how long it takes to close matters and which firms are the most efficient. Using these metrics, Cisco sets bonus goals for outside counsel.

“We ask our partners for very large discounts, but with high bonuses,” Owen says. “They share the risk and rewards.”

Chandler is pushing to expand the amount of work done for a flat fee. He says in-house counsel must be able to present fixed rates not as a way to squeeze outside counsel, but as an opportunity.

“If we’re paying a flat rate of $10,000 and next year we lower it to $8,500, a law firm can either say, ‘We’ll suck up the $1,500 difference,’ or it can see how to reorganize the work and still keep its margins,” he says.

And Cisco is pushing its partners to use basic technologies like extranets, as well as Web enabled reporting tools that allow the company and law firm partners to share information. But beyond that, the company is somewhat vague about what it expects this technology revolution to look like, hoping law firms will initiate projects on their own. When pressed for examples of the kinds of technology they’d like to see, Chandler and others point to a couple of database projects. For example, the McGuireWoods law firm has created ContractBuilder, a database of contract templates clients can use. Also, they point to Reed Smith’s online database of privacy laws relating to the Health Insurance Portability and Accountability Act of 1996. Clients can pay a fixed price to use the database to answer compliance questions.

Building a Better Yardstick

Cisco is using competitive bidding to encourage law firms to come up with innovative ways to do the same work more effectively. “The day is going to come when, bidding for legal work, law firms will be expected to factor cost savings into their rates,” Allan says. “You’ve got to be able to measure more like a business.”

To make things even more interesting, the company is looking outside its traditional Silicon Valley legal ecosystem for partners. Though the company has dabbled with outsourcing work to places like India, Chandler and his team say outsourcing doesn’t necessarily mean going overseas.

In Owen’s article, she points out that Cisco is trying to encourage lower-cost firms within the United States to bid for work. So far the response has been mixed. “Some law firms are very interested,” she says. “I got a number of calls from law firms in the Midwest who saw an opportunity to work with Cisco. And then we had some law firms say, ‘Very interesting, … but no thanks.’ ”

The company is also pushing for firms to work together in consortiums. Cisco and other companies worked with U.K.-based law firm Eversheds to create e-learning programs to offer training about employment laws in various countries.

And Cisco is hoping that law firms bidding for work will include all legal work in one bid, for example offering a plan to handle all of Cisco’s legal work in certain practice areas or locations. They hope firms that can bundle legal work will be able to offer more competitive bids.

Chandler says he spends 10 percent of his budget on technology and re-engineering efforts, trying to find more efficient ways to do the routine tasks, allowing his lawyers to focus on more complicated tasks and litigation. He realizes it’s hard for law firms to justify spending the kind of money he can on technology but is trying to convince them it is worth the effort.

He points to Cisco’s Discovery Lab as an example of how a technology investment can pay dividends. As with any large, publicly traded company these days, Cisco can expect to pay millions of dollars per year in the production of electronic evidence for litigation. By creating a technology department dedicated to finding efficient ways to handle documents, the company hopes to turn a one time expense into a cost saver.

The company has migrated into a new database millions of documents, including e-mails, contracts and other documents that Cisco could need if lawyers came calling. The lab also came up with a way to eliminate duplicate copies of messages, eliminating millions of unnecessary pages.

Before the lab was completed, Cisco was hit with a lawsuit and ordered to produce documents. One electronic discovery firm bid $9 million to find the evidence. After Cisco invested $1.5 million to build the lab, it handled document production in the case for $900,000. “That’s a huge return on investment,” Chandler says. “And it’s the gift that keeps on giving.”

However, Cisco is a technology company with huge resources, and most law firms are reluctant to make huge technology investments unless there is an obvious need. “My very strong philosophy is to look for technology within the range of the doable. I think my biggest complaint about vendors trying to sell technology to law firms is that they don’t understand the legal profession,” Fockler says. “I wonder how much of this is coming from people who provide technology rather than people who experience the pain.”

But Cisco will keep pushing the Internet and technology as the best ways to improve legal services. Instead of thinking of technology as a burden, Cisco’s legal team believes it can be an opportunity for small firms to get a piece of the action.

“You can keep hiring person after person after person, keep adding human capital, or you can make the human capital you have a whole hell of a lot more productive,” Owen says. “Changing the way we do business should be a big win for both sides.”